Wells Fargo on the Hook for Misreporting Delinquency

Posted by NCBRC - August 7, 2018

Finding genuine issues of material fact, the district court denied Wells Fargo’s motion for summary judgment on most of the chapter 13 debtors’ federal and state claims based on Wells Fargo’s misapplication and misreporting of mortgage payments while the debtors were in bankruptcy. Anderson v. Wells Fargo Bank, No. 16-2514, 2018 WL 3426269 (N.D. Tex. July 13, 2018).

Tony and Hanna Anderson were current on their mortgage when they filed their chapter 13 petition. Their confirmed plan provided for continued payments on the mortgage outside the plan. Though the Anderson made all mortgage payments in a timely manner, the mortgage servicer, Wells Fargo, misapplied the payments and reported the debt as delinquent. The Andersons sent Wells Fargo five qualified written requests for information under RESPA and filed a request for investigation under the FCRA. Wells Fargo admitted its error and sent the corrected information to credit reporting agencies approximately two months later.

The Andersons sued Wells Fargo in district court for violations of the bankruptcy discharge injunction, the FCRA, RESPA, TILA and various state and common laws. Wells Fargo moved for summary judgment.

As an initial matter, the court rejected Wells Fargo’s argument that it could not be held liable for violation of the discharge injunction because the mortgage debt outlasted the bankruptcy. Section 524(i) provides: “The willful failure of a creditor to credit payments received under a plan confirmed under this title, . . . shall constitute a violation of an injunction under subsection (a)(2) if the act of the creditor to collect and failure to credit payments in the manner required by the plan caused material injury to the debtor.” The court reasoned that if, as Wells Fargo argued, only collection efforts with respect to discharged debts could violate the discharge injunction, section 524(i) would be meaningless. The court therefore denied Wells Fargo’s motion for summary judgment on the discharge injunction claim.

Turning to the Andersons’ FCRA claims, the court granted summary judgment on the claim under section 1681s-2(a), as that section does not create a private right of action. The same was not the case with section 1681s-2(b), however. That section mandates that a furnisher of information to a credit reporting agency investigate claims of error and correct them if valid. Courts have generally found that the investigation must be “reasonable.” Here, there was no question that Wells Fargo misreported the Andersons’ debt as delinquent and failed to correct those erroneous reports for almost two months after receiving the request for investigation. The court found the factual issue of whether that conduct was reasonable to be a matter for the jury. Furthermore, the Andersons’ evidence of anxiety, fear of job loss, and out-of-pocket expenses relating to the stain on their credit was sufficient to create an issue of fact as to the damages necessary to support a claim under section 1681s-2(b). The court, therefore, denied summary judgment on that claim. The court granted summary judgment on the Andersons’ claim for punitive damages, however, as there was insufficient evidence of a willful violation to go to a jury.

The court denied summary judgment on the Andersons’ claim under RESPA, 12 U.S.C. § 2605(e) and (k), that Wells Fargo failed to comply with its responsibility to timely address “qualified written request[s] from the borrower (or an agent of the borrower) for information relating to the servicing of such loan,” and to correct errors related to allocation of payments. While Wells Fargo responded to each of the QWRs, the court found it was not clear as a matter of law that its responses were adequate and timely.

Wells Fargo argued that the Andersons failed to demonstrate damages resulting from violation of RESPA. The court noted that attorney’s fees and costs related to litigation cannot be used to meet the damages requirement under RESPA and that circuits are unsettled as to whether emotional damages are the types of damages contemplated by the statute. The court concluded that, because RESPA is a remedial consumer protection statute, emotional damages are recoverable for its violation. The court further found that the Andersons had presented sufficient evidence through their testimony of emotional distress and documentary evidence in support to withstand summary judgment.

The court also denied summary judgment on the Andersons’ claim that Wells Fargo violated RESPA, section 2605(f)(1)(B), by engaging in a pattern and practice of noncompliance, as being an issue of fact for the jury.

The court granted Wells Fargo’s motion for summary judgment with respect to the Andersons’ claim that its failure to properly credit their mortgage payments violated the Truth in Lending Act. As a servicer, rather than the original lender, Wells Fargo was not subject to liability under that Act.

The court granted summary judgment on the Andersons’ Texas Debt Collection Act (TDCA) claim based on inaccurate credit reporting as being preempted by the FCRA. Additionally, with respect to the Andersons’ TDCA claim based on misrepresentation or fraud, the court found that Wells Fargo’s improper application of loan payments did not constitute a misstatement under that statute.

The court denied summary judgment on the Andersons’ defamation claim finding that the claim is only preempted by the FCRA to the extent that the actor did not act with malice or willful intent to injure. The court found there was sufficient evidence that Wells Fargo recklessly misreported delinquency after being alerted more than once to its error to deny summary judgment.

Turning to the Andersons’ breach of contract claim the court denied summary judgment on the basis that the contract between the parties required that payments be properly applied and the court presumed a “reasonable time” within which to comply with that requirement. The question was appropriately given to the jury.

The court also denied summary judgment on the Andersons’ negligence or gross negligence claims finding that, while there is generally no special relationship between a mortgagor and a mortgage servicer that would impose a duty of fair dealing separate from the contract, a party has a duty to correct its own false or misleading statement. Because that obligation does not arise out of the contract relationship, the Andersons could go forward with their tort claims.

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